Is It Time To Reassess NetScout Systems (NTCT) After DCF Signals Upside Potential

• If you are wondering whether NetScout Systems stock is offering fair value right now, it helps to step back and see how the current price lines up with what the business may be worth.
• The share price recently closed at US$27.67, with returns of 0.5% decline over 7 days, 2.8% over 30 days, 3.1% year to date and 14.2% over 1 year, while the 3 year and 5 year returns stand at 7.5% decline and 12.2% decline respectively.
• These moves sit against a backdrop of evergreen interest in NetScout Systems as a network visibility and cybersecurity player, with ongoing attention on how its tools fit into long term digital infrastructure spending. Recent coverage has focused on where the shares sit relative to estimates of fair value and how consistently the company converts its technology position into cash generation.
• On our simple valuation checklist, NetScout Systems scores 4 out of 6 for being undervalued, giving it a value score of 4/6. Next we will look at how different valuation methods stack up, before finishing with a framework that can help you think about valuation in an even more useful way.

Find out why NetScout Systems's 14.2% return over the last year is lagging behind its peers.

Approach 1: NetScout Systems Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model estimates what a company might be worth by projecting its future cash flows and then discounting those cash flows back to today using a required rate of return.

For NetScout Systems, the model used is a 2 Stage Free Cash Flow to Equity approach based on cash flow projections. The latest twelve month free cash flow is about $276.24 million. Analyst inputs and extrapolated figures by Simply Wall St see projected free cash flow of $209.30 million in 2026 and $224.50 million in 2028, with further estimates extending out to 2035, all expressed in dollars and discounted back to present values.

Putting these discounted cash flows together results in an estimated intrinsic value of about $49.07 per share. Compared with the recent share price of $27.67, the DCF output implies a 43.6% discount, which indicates the stock is trading materially below this model’s estimate of fair value.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests NetScout Systems is undervalued by 43.6%. Track this in your watchlist or portfolio, or discover 52 more high quality undervalued stocks.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for NetScout Systems.

Approach 2: NetScout Systems Price vs Earnings

For a profitable company like NetScout Systems, the P/E ratio is a useful shorthand for how much investors are currently paying for each dollar of earnings. A higher or lower P/E often reflects the market’s view on future growth and risk, with stronger growth prospects or lower perceived risk usually supporting a higher “normal” P/E, and slower growth or higher risk pointing to a lower one.

NetScout Systems currently trades on a P/E of 20.84x. That sits below the Communications industry average P/E of 32.84x and also below the peer group average of 33.79x. Simply Wall St’s Fair Ratio framework refines this comparison further. The Fair Ratio of 17.83x is a proprietary estimate of what P/E could make sense given NetScout Systems’ earnings growth profile, profit margins, industry, market cap and specific risks.

This Fair Ratio approach can be more informative than a simple peer or industry comparison because it adjusts for the company’s own characteristics rather than assuming it should trade in line with broad averages. Comparing the current P/E of 20.84x with the Fair Ratio of 17.83x suggests the shares trade somewhat above this tailored benchmark, indicating the stock looks overvalued on this metric.

Result: OVERVALUED

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Upgrade Your Decision Making: Choose your NetScout Systems Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, which are simply your story about a company linked directly to your assumptions for future revenue, earnings, margins and the fair value you think follows from that forecast.

On Simply Wall St, Narratives live in the Community page and give you an easy way to connect the qualitative view you have of NetScout Systems with a clear financial model that leads to a fair value per share.

Once you set up a Narrative, the platform compares your Fair Value to the current market price to help you evaluate whether you see the stock as attractive or expensive. It also refreshes your view when new information such as earnings or news is added.

For example, one NetScout Systems Narrative might assume a relatively cautious outlook and arrive at a fair value close to the current share price. Another, more optimistic Narrative could point to a fair value closer to the DCF estimate of about US$49.07 per share.

Do you think there's more to the story for NetScout Systems? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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